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Adds comments from McAndrews starting in ninth paragraph.

Pandora today named former Microsoft executive Brian McAndrews as CEO, who takes over the popular Internet radio service as it works to revive its image with some musicians over royalty payments, builds out its ad business and prepares for competition from new rivals including Apple.

Pandora's shares rose more than 6 percent in late trading.

McAndrews takes over from CEO Joe Kennedy, who announced his resignation in March. McAndrews, ran Avenue A, a digital agency in Seattle in 1999, and built it into aQuantive, which was acquired by Microsoft for $6.3 billion in 2007 (In 2012, Microsoft took a $6.2 billion writedown on the acquisition after it failed to spur growth in the money-losing online division).

He served as a senior vice president at Microsoft, running Microsoft’s Advertiser & Publisher Solutions group, and left in 2009 to work as an investor partner on early-stage tech companies at venture firm Madrona in Seattle. McAndrews currently serves on the boards of The New York Times Co., Grubhub Seamless and AppNexus, Pandora said.

"No one better understands the intersection of technology and advertising, which he clearly demonstrated during aQuantive’s meteoric rise," said Tim Westergren, Pandora’s founder and chief strategy officer, in a statement today. "He has a recognized ability to set strategy, lead large teams and drive growth and innovation at great scale. He is also a natural cultural fit with Pandora. This is a great development for our company.”

Pandora, launched in 2005, is the most popular Internet radio service, with 72.1 million active monthly listeners as of August who log more than 1 billion listening hours on Pandora a month. The company says its share of total U.S. radio listening was 7.46 percent as of last month, and it considers itself "effectively" the No. 1 radio station in most major U.S. markets when compared to terrestrial radio. Internet and mobile listeners have access to more than 1 million tracks from more than 100,000 artists.

The Oakland, California-based company has been facing criticism from musicians, including Pink Floyd, and industry groups who have challenged its decision to support legislation called the Internet Radio Fairness Act that would effectively reduce the amount of royalty payments made to artists. Pandora's Westergren has called out the discrepancies paid in royalty rates among music providers, with satellite radio service Sirius paying about 8 percent of its revenues in performance royalties. Pandora says it pays more than 50 percent of its revenues in performance royalties.

Pandora may face a challenge in its business with the launch of a new service from Apple called iTunes Radio. It's set to go live on Sept. 18 as part of Apple's new iOS 7 mobile operating system software for the iPhone and iPad. But Apple is late to a market dominated by Pandora, and already populated with other services, including iHeartRadio and Spotify. This week, Microsoft saids its new Xbox Music service will have a radio-like function and work on Apple iOS and Google Android devices.

McAndrews, who says his favorite musician of all time is Elton John, says he sees a lot similarities between aQuantive and Pandora in terms of culture and mission. "One of the things I loved about being at aQuantive – we are literally doing things that have never been done before," he said in an interview today. "It’s the same thing at Pandora. Pandora has created an entirely new industry. It continues to lead."

He said he supports Pandora's view of royalties — "Musicians should be fairly compensated for their art. The existing system was created piecemeal over decades." — and said he hopes to build on the ad business that a major source of revenue for Pandora, especially in mobile.

Pandora is No. 3 in worldwide in mobile ad revenue, behind Google and Facebook, according to eMarketer. The company said its second-quarter total mobile revenue grew 92% year-over-year to $116 million.

"Pandora has done a great job of blazing the trail with advertising," McAndrews said. "Everyone recognizes there’s more to be done there. That’s a distribution channel that is nascent. So I hope to bring expertise and perspective there."

Pandora's shares were up 6.2 percent, or $1.33, to $22.71 at 5:21 pm New York time. They closed at $21.38 in regular NYSE trading earlier today.

In its search for a new CEO, the Board sought a candidate who could build on Pandora’s leading position in internet radio and accelerate its fast-growing advertising business.

“We had very specific criteria for our new CEO, and we were very strategic about finding the right person -- Brian is that person,” said Tim Westergren, Pandora’s founder and chief strategy officer. “No one better understands the intersection of technology and advertising, which he clearly demonstrated during aQuantive’s meteoric rise. He has a recognized ability to set strategy, lead large teams and drive growth and innovation at great scale. He is also a natural cultural fit with Pandora. This is a great development for our company.”

Following senior positions at General Mills and ABC, McAndrews, took over Avenue A, a small digital agency in Seattle in 1999, and as President and CEO built it into aQuantive, the fastest-growing digital marketing company in the world at the time. aQuantive was subsequently acquired by Microsoft for $6 billion in 2007. After serving as a senior vice president at Microsoft and running Microsoft’s Advertiser & Publisher Solutions group, McAndrews joined Madrona as an investing partner in 2009, focusing on early-stage technology companies. In addition to his work at Madrona, McAndrews currently serves on the boards of The New York Times Co., Grubhub Seamless and AppNexus.

McAndrews was recognized as Advertising Age’s first-ever “Digital Executive of the Year” and he was designated one of the 30 most influential executives in the advertising, marketing and media world in Adweek’s 30th Anniversary issue.

“It is a great privilege to be asked to lead Pandora at this important moment in the company’s history,” said McAndrews. “By capturing the enthusiasm of more than 72 million monthly listeners, the management team, led by Joe and Tim, has made Pandora the clear internet radio leader and created a product that consumers love. I look forward to joining this great team to build on Pandora's success for years to come.”

“It has been an honor and pleasure to work with our management team and employees for the past nine years to reinvent radio and put Pandora on a clear path toward continued long-term growth,” said Mr. Kennedy. “With a proven record of growing businesses and managing complex organizations, Brian is uniquely qualified to lead Pandora to the next level in our business. I’m confident that under his leadership, Pandora will continue to expand its business and deliver tremendous value to listeners, artists and advertisers.”